Observations on economics, the academy, the wider world, and things that run on rails.

22.9.15

THE IOWA CAR CROP.

Yes, beating up on Donald Trump for misunderstanding comparative advantage falls into the same category of mismatch as most recent Bear - Packer games. But it's useful to have Mark Perry (via Cafe Hayek, with an assist from Milton Friedman) spelling out the way in which swapping beef for cars works out well for the United States.

In economic terms, our standard of living is highest when we maximize imports and minimize exports, which is exactly the opposite of the misinformed thinking of Donald Trump and many politicians. If anything, it’s the US that has “hosed” China, Japan and Mexico over the years, and it’s the US that has engaged in the international “theft” of billions of dollars of imported goods that have been “stolen” from those countries. After all, when you consider who ends up with the most “stuff” from international trade, it’s the US that is the winner – we have acquired more “stuff” from them, than the volume of “stuff” we sent them. That’s what a supposed “unfavorable” trade balance really is – we get more of their stuff than they get of ours, and then we complain that it’s “unfavorable.”

There are laws of conservation in economics, and the money that goes overseas can either serve as a store of value there (years ago, I was able to make transactions in U.S. dollars all over China and eastern Siberia) or invested in U.S. assets.